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Paper Products: Higher demand boosts bottomline

Jan 31, 2011

Paper Products Ltd. has announced its 4QCY10 results. The company has reported a 45.7% YoY and 89% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary

Sales for the company increase by 45.7% YoY during the quarter.

Operating (EBITDA) margins for the company fell by 0.6% during the quarter to end at 11.9%. The fall in operating margins is attributable to higher raw material costs, partly offset by fall in other expenditure (both as a percentage of sales).

Net profit increased by 89% YoY during the quarter. This fall comes on the back of higher operating income, fall in interest costs and in depreciation and lower effective tax rate.

Net profit for CY10 increased by 20.5% YoY while net profit margins remained flat. This performance came on the back of higher extraordinary income. When adjusting for one time gain the net profit fell by 16.3% YoY.

Rs (m)

4QCY09

4QCY10

Change

CY09

CY10

Change

Net Sales

1,315

1,917

45.7%

5,843

7,105

21.6%

Expenditure

1,152

1,688

46.6%

5,065

6,359

25.5%

Operating Profit (EBITDA)

164

229

39.7%

778

747

-4.0%

Operating Profit Margin (%)

12.5%

11.9%

13.3%

10.5%

Other Income

3

6

93.9%

25

18

-29.5%

Interest

2

1

-25.0%

11

6

-48.2%

Depreciation

83

79

-5.2%

312

324

4.0%

Profit before Tax

83

156

88.3%

480

435

-9.5%

Extraordinary item

8

16

84.5%

15

151

877.9%

Tax

19

34

83.9%

122

135

10.6%

Profit after Tax

72

137

89.0%

374

451

20.5%

Net profit margin (%)

5.5%

7.1%

6.4%

6.3%

No. of Shares (m)

63

63

63

63

Diluted earnings per share* (x)

7.2

P/E ratio (x)

7.4

What has driven performance during 4QCY10?

Sales of the company improved during the quarter on the back of strong demand for packaging from FMCG companies.

Cost break-up

4QCY09

4QCY10

CY09

CY10

Raw material

864.2

1355.8

3825.4

4965.5

Staff

100.1

142

493.3

591

Other expenditure

187.2

189.8

746.1

802.2

Operating income grew by 39.7% YoY. This was lower than top line growth and was a result of sharp increase in raw material costs. Raw material costs increased by 57% YoY during the quarter. However, staff costs and other expenditure grew slower than sales and as a result, both fell as a percentage of sales during the quarter. This provided some support to the operating income.

Net profit margin increased by 1.6% to 7.1% during the quarter. This growth is due to increase in operating income, rise in other income, fall in depreciation and in effective tax rates. Effective tax rates fell from 22.5% to 22.0% during the quarter.

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